Update: Eurozone Manufacturing Slows Less Than Expected in July – But UK Manufacturing dire

Forecast: What Action will BoE Take? – Rate cut on the cards for Britain this week

Euro Falls Vs Rallying Pound Today

As the UK’s Services PMI wasn’t negatively revised, as some economists believed would be the case, the Euro Pound (EUR GBP) exchange rate declined over the course of the European session.

The EUR GBP currency pair dropped to a low of 0.8383.

(Previously updated 09:00 GMT)

EUR GBP Exchange Rate Could Advance on UK Services PMI

The Euro Pound exchange rate may firm over the course of the day if the UK’s services PMI reveals a stronger-than-anticipated rate of contraction in the UK’s dominant services sector.

As it stands, the EUR/GBP currency pair is trending in the region of 0.8414.

(Previously updated 02/08/2016)

Euro Pound Exchange Rate Forecast to Advance on Wednesday

The Euro to Pound Sterling exchange rate slipped lower on Tuesday, as the UK’s latest construction news came in slightly above bearish forecasts.

However, Eurozone producer prices improved much faster than expected in June. The Eurozone Producer Price Index (PPI) improved from 0.6% to 0.7% in June, making it the fastest rise in producer prices since 2012.

As a result, it is unlikely that Sterling’s Tuesday strength will continue – especially if Wednesday PMIs undermine expectations.

UK services are projected to have contracted at 47.4 in July, with Markit’s Composite figure expected to come in at 47.7. If these continue Monday’s trend of printing worse-than-preliminary scores, the Pound will drop.

The Eurozone’s final Services and Composite PMIs, on the other hand, will give investors a much more solid idea of how well the Eurozone has weathered Brexit market panic.

While analyst consensus indicates that this drop was indeed due to the Brexit lowering the appeal of Eurozone investment from the UK, markets had previously expected far worse Brexit shockwaves to hit the Euro bloc.

This news saw the Euro holding its ground across the board on Monday. However, Sterling was able to recover slightly from its worst levels as investors readjusted ahead of the week’s remaining PMI scores – and of course Thursday’s Bank of England (BoE) policy meeting.

Euro Pound Exchange Rate Jumps as UK Manufacturing Sector Contracts

An initial estimate, published in July, had indicated that the UK’s manufacturing gauge would fall below the 50 mark separating growth from contraction but the confirmed result was worse than feared.

Markit economist Rob Dobson issued the following statement about the result: ‘The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers. On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery.’

The EUR/GBP exchange rate rallied to a high of 0.8490.

(Previously updated 08:00 01/08/2016)

This week’s upcoming ‘Super Thursday’ is likely to be the primary driving force behind Euro Pound exchange rate forecasts, as Eurozone data takes a relative backseat after last week’s solid session for the Eurozone and the shared currency.

EUR/GBP started last week’s session with a low of 0.8343, but climbed throughout the week as Eurozone data continued to indicate that the bloc had remained sturdy since the Brexit. By the week’s end, the pair had briefly hit a two-week-high of 0.8480 before slipping slightly.

While the BoE decision will be the week’s main market mover, Monday could see EUR/GBP exchange rate movement triggered by final manufacturing PMIs for the Eurozone and its largest economies and the UK’s Manufacturing PMI for July. If the UK figure is confirmed at 49.1, or negatively revised, we could see Sterling tumble.

Euro (EUR) Strengthened as July Eurozone Data Continues to Impress

The Euro sustained a solid rally during last week’s session, as sentiment towards the shared currency and the Eurozone as a whole continued to improve following the release of better-than-forecast July data.

Markets had previously predicted that the UK’s vote to Brexit was a huge downside risk to the Eurozone economic bloc. Some analysts had even predicted that the Eurozone would suffer worse than Britain following the vote.

However, recent data appears to have proven those bears incorrect. Eurozone PMIs have indicated that the Eurozone economy has remained resilient since the Brexit vote.

However, the Euro’s advances were slightly held down by Q2’s Eurozone Gross Domestic Product (GDP) report. While it met analyst expectations, it was held back by news that France’s economy had not grown at all in Q2. The BBC reported;

‘growth stalled in the April-to-June period with the Euro 2016 factor stripped-out and after a fall in food spending, according to France’s statistics agency Insee.

France’s finance ministry said the lack of expansion in the second quarter was “disappointing”. However, it stuck to a forecast of 1.5% GDP growth for the full year.’

Pound (GBP) Slumps on Poor July Data, BoE Rate Cut Bets

The Pound’s appeal worsened over the last week, as economic data as well as business and consumer confidence reports continued to indicate that the Brexit had had a real negative impact on Britain’s economy since June.

Comments from BoE policymaker Martin Weale, indicating that poor PMIs could give the bank a call to action, are among the biggest factors for this.

News from Thursday that some UK high street banks were warning customers on the possibility of negative interest rates also worsened rate cut bets, with more analysts now speculating the possibility of the BoE introducing negative rates in the future.

Friday’s session saw the Pound weakening further, in response to news that UK consumer confidence had experienced its biggest drop since 1990. Reuters reported on Friday;

‘British consumer morale suffered its sharpest drop in more than 26 years after last month’s decision by voters to leave the European Union, according to figures that are likely to embolden Bank of England policymakers to take action next week.

The GfK survey was worse than all forecasts in a Reuters poll that suggested consumer confidence would tick up from a reading of -9 in a one-off “Brexit special” version of the survey published three weeks ago.’

The Euro to Pound exchange rate is in a decent position to continue advancing this week, especially if July’s final Eurozone PMIs confirm what preliminary figures suggested – that the Eurozone had weathered Brexit market panic better than analysts expected.

However, the biggest EUR/GBP movement potential for the coming week is certain to be the Bank of England’s (BoE) upcoming August policy decision meeting.

Time has passed quickly since July’s BoE meeting, in which policymakers opted to leave rates frozen while they waited for more post-Referendum data to be released and give economists a better idea of how dire the UK economy’s situation was.

Data released over the last two weeks has given some BoE policymakers – as well as many commentators – reason to believe that the central bank is much more likely to introduce a stimulus package this week.

Stimulus bets include predictions of a UK rate cut, which most analysts believe will happen this week. The most common assumption is that Britain’s 0.50% interest rate will be cut to a new record low of 0.25%, but some bears have even suggested that the bank could move towards negative rates right away.

Ultimately, the Pound is likely to continue to fall and allow the Euro to advance for this week’s Euro Pound exchange rate forecast.